Page 273 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

Notes Net Assets: x x x x
Less: Preference Share Capital (paid up capital) x x x x

Balance of Net Assets Available for Equity shareholders x x x x
or Intrinsic value of Equity Shares

Net AssetsAvailableforEquityShareholders
Value per equity share = Numberof EquityShares

Alternatively, the intrinsic value of equity shares can be computed from the liability side of the balance
sheet.
` `
Equity Share Capital x x x x
Add: Reserve and Surplus x x x x
Profit on Revaluation of Assets and Liabilities x x x x x x x x
Gross Equity x x x x
Less: Loss on Revaluation of Assets and Liabilities x x x x
Miscellaneous Expenditure (fictitious assets) and
Other Accumulated Losses x x x x x x x x
Net Equity x x x x

Net Equity
Value per equity share =
Numberof EquityShares

Notes Assets Valuation Methods is also known as Net Assets Valuation Method, Assets
Backing Method, Assets Cover Method, Break up Value Method, Internal Value Method,
Equity Valuation Method and Capital Value Method.

Purpose for which the Assets Valuation Method is suitable: In the following cases, this method
is considered suitable:
(i) When shares are being valued for wealth tax purpose.
(ii) When shares are being valued of such a company of which reliable information about the
profit potential cannot be obtained.
(iii) When the valuation of share is being done of such a company which is trading at a loss and
there is no expectation of earning a profit in future.
(iv) Due to heavy fluctuations in the business or disruption of business, if there is no reliable
evidence of future maintainable profits.
(v) If the company is going to be liquidated and there is no expectation of doing any business
in future.

(vi) When the companies are going to be amalgamated, absorbed or reconstructed.
(vii) When the shares of a private company are valued.
(viii) Where the assets of a company are mostly of liquid character.

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